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Heads of Terms are a document that records the key terms that have been agreed in a commercial property transaction and these are circulated to all parties and the legal documentation is drafted on the basis of what has been agreed.

Who produces the HOT’s?

These are usually produced by the landlord or the landlord’s agent with the opportunity for the tenant to review and comment on them.

Why are HOT’s useful?

Some of the benefits of having these in place are as follows:-

• Allow all parties to have a clear understanding of what they have agreed
• Help to identify issues that may prevent the transaction from taking place.
• Help to identify issues that will determine how to structure the transaction.
• Speed up the drafting of the legal documentation.

What would you expect to see in HOT’s?

For example, Heads of Terms for the grant of a lease can include:

• Extent of the property
• Length of the term
• Rent and rent reviews
• Who repairs and who insures
• Service charges
• Whether the tenant can transfer their lease to someone else and/or underlet
• Which type of alterations are permitted / Tenant & Landlord works 
• Whether the transaction is conditional on a particular matter, such as planning permission?
• Provision for a rent deposit and/or guarantee.
• Whether the lease benefits from statutory security of tenure or not.
• Timescales
• Arrangements for inspections and surveys of the property.
• Legal costs/costs contributions.

Are HOT’s legally binding?

Although the heads of terms should be as accurate as possible and agreed in good faith, it is important that the parties make it clear that they do not intend the heads of terms to be legally binding, both in any emails or other communications by which they discuss, settle or circulate them and by clearly marking the heads of terms themselves “subject to contract”.

What to include and what not to include

If there are pre-contract matters which the parties do want to be legally binding (such as confidentiality or  exclusivity  arrangements), these are better kept separate from the heads of terms.

How can we help?

Having a set of Heads Of Terms can help facilitate and accelerate progress of a transaction more effectively.  You will want to ensure that teh terms adequately and accurately reflect what you want with no hidden surprises. We recommend rtaking the time to review them with a commercial property specialist before they are finalised as they can be key to achieving your intended objectives in a commercial property transaction. 

For further advice on commercial property matters please contact a member of our specialist team on 0208 363 4444.